There are several directions you may take when selling your business, but considering who might fill your shoes is one of the most important elements to understanding how to execute your exit strategy.
There are several primary types of buyers you might encounter as your business is marketed for sale. Each have different priorities and likely represent different outcomes for the future of your business. Thus understanding the potential buyers is imperative.
Here are the 3 primary types of buyers that are good to consider when selling your business:
- Investor/Small Investor Groups: These buyers are financially secure individuals or groups looking to purchase and manage their own company. They are usually not interested in relocating and are focused on the future prospects of the business.
- Strategic Buyers: Strategic Buyers are generally established companies that are looking to expand their product/service offerings. They are not direct competitors. It’s common for strategic buyers to have prior M&A experience, which shortens the process and can make for a quicker more efficient sale.
- Financial Buyers: Financial Buyers, otherwise known as private equity firms, are buyers that manage large funds and are interested in acquiring, investing in, and reselling a highly-profitable business. They are generally most concerned with the return on investment that can be obtained.
Here are the other types of buyers that, generally speaking, will not provide you with the highest return:
- Employees: Your employees typically do not have the required cash to buy your business. Business owners are typically unaware of an employee’s financial situation to determine if they have the capability or management skills to purchase and run the business successfully. Also, an employee may think they deserve to pay less than market value for your business. In some rare instances, the employees may have the financial wherewithal and skills to acquire your business, but it takes careful planning. The downside of offering a business to employees who cannot consummate the transaction is that they become disillusioned and leave the company. This scenario leaves you with a far less valuable company or an unsaleable business.
- Competitors: Your business’ competitors will likely apply a low value to your business as they already possess much of what you are selling. It is possible a competitor is expressing interest in buying your business, just to gain critical, confidential information about your business in hopes of gaining leverage over your business in the future. Selling to a competitor could be detrimental to the future viability of your business.
Consult with a certified business intermediary,when considering the sale of your business. They have experience across a wide range of industries and with each of the buyer types described above. The ability to confidentially identify the type of buyer interested in buying your business can have a significant impact on the total value you receive for your business.
About Sun Acquisitions
Sun Acquisitions is a Chicago based M&A firm that specializes in helping people confidentially buy and sell privately held firms. We have experience working with businesses across all industry sectors and sizes. Each member of our team is a certified business intermediary, equipped with the knowledge and proven method to sell your business successfully.
If you are interested in the sale of your business, contact us at (773) 243-1603 or [email protected] to get the conversation started today.